Ex-Southcorp allies aiming to clean up on cleanskins

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The grape and wine glut has made cleanskins a growth industry,
providing opportunities for new players, including former
executives from the troubled wine giant Southcorp.

BackVintage Wines is the brainchild of Southcorp's former
executive manager of corporate affairs Glen Cunningham, who lost
his job two years ago when he sent an email to analysts - instead
of notifying the entire market - suggesting they "may wish to
review" their numbers in anticipation of the effect of the poor
2000 vintage on premium wines.

With revenge coming as a dish best served cold, Mr Cunningham
concedes that the cut-price booze business owes some of its success
to those Southcorp connections.

"(Ex-Southcorp chief executive) Keith (Lambert) had sacked a lot
of people, so the whole of South Australia was full of ex-Southcorp
people, and they were only too happy to help," he said.

The "virtual wine company", established about a year ago in
Sydney, deals with small wineries, taking surplus wine that it says
would normally sell for about $25 to $30 a bottle.

The company bottles it, slaps a BackVintage label on it and
sells the stuff by the caseload for $10.99 a bottle.

Using word of mouth and the internet for direct marketing,
BackVintage bypasses the middlemen in the distribution chain to cut
prices. It outsources production to the contract bottler Vinpac,
which belongs to Southcorp competitor Foster's.

BackVintage claims it already has about 1500 people on its
client list, including merchant bankers, lawyers and other
professionals, from Townsville to Western Australia. It's just
started selling to corporations.

The Southcorp links go on: BackVintage's managing director is
Julian Todd, who worked on Southcorp's strategic planning and
corporate finance, and the wines are selected by Nick Bulleid, the
former manager of Southcorp's market information and analysis unit
and one of the few Masters of Wine that Australia has produced.

Cleanskins are cashing in on the glut, with wine companies
needing to empty their tanks every February to make way for the new
vintage.

However, Mr Cunningham said they would still be around after
supply and demand got back into balance.

He contends cleanskins are the result of too many wineries and
brands, and retail consolidation.

"Every wine company has issues about unsold product that they
would see as better sold than blended down or put into casks," Mr
Cunningham said.

And regardless of whether it's Coles Myer or Woolworths that
wins the battle for ALH, the result will be the same, he says: more
private labels will replace brands on retail shelves, with the
retailers calling for tenders on, for example, a good Eden Valley
riesling that they can sell under their own label. Wine companies
will just have to submit samples.

This will put the squeeze on many more second-tier companies
cursed with having good wine but lacking strong, must-have
brands.

"Whoever gets ALH will be looking at that," Mr Cunningham said.
"We have yet to see the rise of private labels in this country but
that will be the outcome of ALH. In Britain, it's 50 per cent and
in Australia, it's less than 5 per cent so there is room for
growth."

Retailers say that cleanskins are attractive because they can
provide better margins than some of the brands now selling at close
to cost.

But Keith Smith, executive chairman of KPMG's wine industry
group, said that while cleanskins were here to stay, the future of
cleanskin shops might be bleak. "Wherever there is a margin to be
made, the big retailers will move in," he said.